South African carriers banking on Africa liberalisation

Washington DC
Source:
This story is sourced from Airline Business
Subscribe today »

With domestic passenger traffic falling 14% so far this year and expected to be at best flat next year, South African carriers are more eager than ever to divert narrowbody capacity north to more lucrative international routes.

South Africa's carriers, in particular the country's private operators, have been advocating liberalisation of Africa's skies for years with limited success but are now confident of winning new route authorities as South Africa's government pushes its neighbours to forge open skies agreements or at the very least expand bilaterals.

"It's not going to open overnight. It won't be Yamoussoukro but it will improve and we're positioning ourselves for that," says Comair joint chief executive Gidon Novick.

Comair, which operates a British Airways franchise as well as a low cost unit Kulula, has been pushing the South African government for years to renegotiate bilaterals to allow dual carrier designation. Now it is only able to compete against government-owned South African Airways on routes to Mauritius, Namibia, Zambia and Zimbabwe but Novick says Comair is planning to add capacity to Zambia and is confident it will be cleared to serve a fifth African country next year.

 
 

Airlines Association of Southern Africa president John Morrison says the South African government has a new liberalisation policy in which it is trying to make sure there is adequate capacity between South Africa and every country. He says so far this has resulted mainly in new agreements with non-African countries such as the UAE, but he expects gradually the government will be able to persuade other African countries to also open up their skies, something they tentatively agreed to do back in 2000 with the Yamoussoukro Agreement. "If the Yamoussoukro decision was implemented it would make a huge difference in opening up Africa and it needs to be opened up," Morrison says.

He adds the failure to open up air services is holding back economic growth in the continent. He says in some cases the easiest way to get from South Africa to another African country is via Europe and where there are direct flights there is so little capacity "fares are kept artificially high".

1Time Airlines chief executive Glenn Orsmond adds: "No one from Africa will be able to afford to come to South Africa to watch World Cup soccer in 2010 because air fares are too expensive."

1Time, which has been able to grow traffic by 15% this year despite the domestic slowdown, added its first international service to Zanzibar in Tanzania earlier this year. Orsmond says the service, which was launched with one weekly frequency and is now operating twice a week, has been successful and will be expanded to three weekly flights next year. But he says so far 1Time's attempts to win other international route rights have come up empty handed.

Orsmond points out the government to date has only succeeded in negotiating open skies deals with African countries which are not within the range of 1Time or Comair's all-narrowbody fleets or do not have the demand to support direct air services.

Where bilaterals have been expanded Orsmond claims only SAA has benefited, pointing to the recent decision to award additional frequencies on the lucrative Johannesburg-Luanda route to SAA instead of designating a second carrier. "SAA is harming growth in Africa because there's no competition," he says. "We're quite confident we can put on five weekly flights to Luanda easily and lower fares by 50%."

But SAA business development head Jason Krause says SAA is advocating more liberalisation for the benefit of all carriers. He says securing more rights is important for SAA to carry out its long-term strategy of expanding its African network and he is willing to accept liberalisation will also mean more competition on more African routes.

"You can't have one without the other. We're quite happy to open it up because it will create a better market opportunity for us and we know we can compete," Krause says. "The fact Yamoussoukro has not yet been realised creates constraints and that's not good for all. It's not good for the economy and trade and it's not good for us as we can't add flights."

Until there is full liberalisation, the best strategy for expanding in Africa perhaps is investing in other carriers. For example, Comair expects to complete a deal with the Malawi government by the end of 2008 that will see it launch a new carrier in mid-2009 that will also operate as a BA franchise.

As the new carrier will be based in Malawi, with Comair only owning a 49% stake but having management control, it gives Comair a way around a restrictive bilateral in which only Air Malawi and SAA now have traffic rights. The Malawi government, after initially pursuing a privatisation of its ailing flag carrier, has agreed to shut down Air Malawi and Comair Malawi will take over its traffic rights including to Johannesburg.

"It will serve Malawi in a much better and more profitable way," Novick says. "It will be a branch or an outstation of our business. We won't have any infrastructure there."

Novick says Comair Malawi, which will initially only operate one Boeing 737-300, "will be a good case study for other African governments" and Comair has "a lot of feelers" out with other governments to discuss similar ventures. But investing in African carriers can be seen as too risky for some. SAA, for example, decided not to buy into other African carriers after its investment in Air Tanzania ended in 2006 with a big write down, and Orsmond says 1Time is not exploring opportunities outside South Africa because "it's pretty difficult to fix a loss-making airline".